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James Williams, news editor, Hedgeweek

ECB delivers opinion on proposals to amend UCITS V Directive… Long-term UCITS attract EUR234billion in net inflows for 2012…

Muzinich & Co, the New York-based credit specialist is planning to launch a UCITS version of its Credit Opportunities Fund, managed by Mick McEachern, in Q2 this year. As reported by portfolio adviser, the “go anywhere” strategy was seeded in the US last month.

The strategy invests in global investment grade and high yield corporate bonds and bank loans using robust bottom-up fundamental analysis with a focus on financial creditworthiness. The strategy, said founder and chairman George Muzinich, is not involved in complex derivatives.

“Our clients want to invest in the US, Europe, short duration, bank loans and get the relevant timing right. It’s more of an absolute return type strategy and we can do the diversification for them – it’s a broader vehicle,” commented Muzinich. Inflation has eaten in to people’s cash reserves sitting in bank accounts and this strategy is one way to guard against inflationary losses. “Over the past few business cycles we have managed to keep value with just one down year in the US in 2008,” added Muzinich.

He sees emerging markets as an interesting area: “ We will be putting more emerging market in to portfolios that allow it,” said Muzinich, adding that it would give investors the choice as to whether to invest in European, US, and emerging market corporate credit.  

The European Central Bank has delivered its opinion to the European Commission on proposals to amend the UCITS Directive
with respect to depositary functions, remuneration policies and sanctions under UCITS V. In the ECB’s opinion, the UCITS framework should be more stringent than the AIFM Directive. It makes the following amendments:

  • Re-use by the depositary of assets it holds in custody should not be allowed under any circumstance
  • Investors must know when non-EU sub-custodians are not subject to the levels of capital and effective supervision required in the EU. The ECB also calls for a complete review of the exception for allowing those third country entities to function as a sub-custodian of a UCITS depositary
  • The Commission should include in its Delegated Regulation examples of events beyond reasonable control that release depositaries from liability for loan assets

Illinois-based investment firm First Trust Advisors is planning to launch a series of ETFs in Europe during Q1 of 2013 reported FTAdviser this week. The three AlphaDEX ETFs will all be UCITS IV-compliant and, subject to regulatory approval, will be listed in Ireland and London. The firm has USD9.3billion in ETF assets under management, of which USD4.6billion is through its AlphaDEX funds. The funds are designed to track custom enhanced indices as well as generate excess returns using a rules-based stock selection methodology. Eric Anderson, vice president of First Trust, said that the stocks are ranked according to value and growth factors “rather than market cap. These new ETFs are designed to provide investors with targeted equity market exposure whilst seeking to generate positive alpha relative to the broad-based passive index.”

Long-term UCITS recorded EUR234billion in net new inflows for 2012, the latest report by the European Fund and Asset Management Association
shows. December 2012 saw continued optimism as fears over the Eurozone debt crisis subsided and stock markets rose. This helped equity funds attract EUR14billion; their highest monthly net inflows since January 2011. This followed net inflows of EUR13billion in November. Likewise, long-term UCITS attracted EUR35billion, slightly down on EUR38billion in November. In addition to equity funds doing well, bond funds also recorded good inflows of EUR14billion. However, as a result of large net outflows from money market funds in December, overall net inflows into UCITS amounted to just EUR1billion. A significant drop on November’s figure of EUR38billion. Total net assets of UCITS increased by 0.5 per cent in December to EUR6.351trillion.    

Reflecting on 2012, Peter de Proft, Director General at EFAMA said that it was a good year for the European investment fund industry with net sales of UCITS and non-UCITS totalling EUR331billion. Said de Proft: “
The strong demand for UCITS may be attributed to the decisive policy measures taken by the ECB and its commitment to do “whatever it takes” to save the euro. 

“Overall, bond funds were the big winner as investors searched for yield in a sustained low growth, low interest rate environment.  Equity funds have only benefited from improved investor confidence at the end of the year.  This explains why they only attracted EUR2billion in new money in 2012.  Still, this is a much better outcome than in 2011, which saw equity funds recording net withdrawals of EUR70billion.”


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